In its judgment handed down on 18 June 2021 the UK Supreme Court (the ‘UKSC’), with seven Judges sitting, handed down its ruling in Manchester Building Society v Grant Thornton UK LLP. The judgment simplifies, to an extent, the proper approach to determining the scope of duty and extent of liability of professional advisers in the tort of negligence. Whilst the decision of the UKSC was unanimous, some of the judges produced minority judgments which gave different reasons for arriving at the conclusion. Most notably, the UKSC clarified that the dual ‘advice’ or ‘information’ approach taken by Lord Hoffman in South Australia Asset Management Corpn v York Montague Ltd [1](‘SAAMCO’) should not be seen as a ‘strait jacket’, but instead only as an illustrative approach to the application of the scope of duty in this particular context.


Grant Thornton LLP UK (‘GT’), the accountants, incorrectly and negligently advised Manchester Building Society (‘MBS’) that its accounts could be prepared according to a method known as ‘hedge accounting’. MBS relied on this advice from GT and subsequently prepared its accounts in accordance with this method between 2006 and 2012. MBS engaged in a strategy of entering into long-term interest rate swaps as a ‘hedge’ against borrowing money. The theory behind hedge accounting meant that the swaps and the underlying mortgages were treated as a single entry of equal value in MBS’s accounts.

GT informed MBS in 2013 that the advice that it had provided was wrong. MBS was then forced to restate its accounts. The restated accounts demonstrated that MBS had substantially reduced assets. Importantly, MBS operated in a regulatory environment which required it to maintain a sufficient level of capital to ensure that it could continue to operate in circumstances of market stress. MBS realised that it had insufficient capital to meet its regulatory requirements. It was therefore forced to discontinue its hedging strategy and close out the swaps at the cost of over £32m. MBS argued that ‘but for’ the advice from GT, it would not have entered into the long-term rate swaps and therefore would not have lost the money when it had to close the swaps out.

In the High Court the judge held that the losses were a result of the market and that GT could not be held liable for them. MBS appealed but the Court of Appeal upheld the first instance decision although on different reasoning. MBS appealed to the UKSC.

Decision of the UKSC

The UKSC upheld the appeal and found for MBS, although damages were reduced as a result of MBS’s contributory negligence. In upholding the appeal, the UKSC considered the extent of GT’s duty to MBS when it provided advice to MBS on the permissibility of using the hedge accounting strategy.

In his judgment Lord Hodge said that the scope of the duty owed was paramount. Simply because a party owes a duty of care to another does not mean that the duty extends to every type of harm which the party may suffer if that duty is breached. There is a point at which the duty begins, and it is this point that the court was seeking to establish.

The court held that the scope of duty question should be located within a general conceptual framework in the law of the tort of negligence. The scope of duty assumed by a professional adviser is governed by the purpose of the duty, judged on an objective basis by reference to the purpose for which the advice is being given. The court emphasised that “the focus should be on identifying the purpose to be served by the duty of care assumed by the defendant[2]”. When it comes to professional advisers the court should look to see “what risk the duty was supposed to guard against and then look to see whether the loss suffered represented the fruition of that risk[3]”. These are the tests which will guide the assessment of the extent of the advisers’ scope of the duty in the future.

Advice’ versus ‘information’ and using SAAMCO as a cross counterfactual check

Previous case law in this area has been dominated by the House of Lord’s adoption in SAAMCO of the distinction between ‘advice’ and ‘information’ type cases. Pure ‘advice’ cases analysed the role of the adviser as assuming complete responsibility for every aspect of a transaction in prospect for the client. The court said that “In an ‘advice’ case, the adviser’s duty “is to consider all relevant matters and not only specific factors(and what counts as a relevant matter for the adviser is determined by the purpose for which he has agreed to give advice”)[4]. In contrast, in an ‘information’ case the adviser has assumed responsibility under a duty the scope of which is limited, and which may only be a small part of the overall transaction. Other relevant considerations and the overall assessment of the commercial merits of the transaction are exclusively matters for the client. In an ‘information’ case the defendant is only responsible for the financial consequence of being wrong, not for the financial consequences of the claimant entering the whole transaction.

The court considered the distinction drawn by Lord Hoffmann in SAAMCO and said this distinction should not be treated as a rigid strait jacket[5] as very few cases were at either end of the spectrum. Its very rigidity made it liable to mislead and produce the wrong conclusion in these types of cases. Instead, as mentioned in the paragraph above, the focus should be on identifying the purpose to be served by the duty of care assumed by the defendant.

The court also examined Lord Hoffmann’s counterfactual analysis which he proposed as a way to assist in identifying the extent of the loss suffered by the claimant which falls within the scope of the defendant’s duty, by asking in an "information" case whether the claimant’s actions would have resulted in the same loss if the advice given by the defendant had been correct. The court agreed that it was helpful as a cross counterfactual check to any analysis but that it should not replace the objective decision that needs to be made regarding the scope of the duty of care.

The court held that the purpose of GT’s advice was very clear: GT advised MBS that it could employ hedge accounting to reduce unpredictability on its balance sheet and still maintain sufficient capital to meet its regulatory requirements. Based on this technical accounting advice MBS assessed that it could carry out its business strategy of entering into long-term interest rate swaps as a ‘hedge’ against borrowing money. Consequently, there was a nexus between the purpose of the advice (to establish whether it was permissible for MBS to use hedge accounting) and the ultimate loss suffered when MBS was forced to close its swaps early, to comply with its regulatory obligations, at a substantial loss. Considering these facts the court had no problem establishing that there was a causal connection between GT’s negligent advice and MBS’s loss. However, the court did make a reduction of 50% of the damages it awarded owing to the contributory negligence of MBS’s management which arose from “mismatching of mortgages and swaps in what was an overly ambitious application of the business model[6]”.

What does this judgment mean for those who give professional advice?

In this judgment the UKSC has set out a simpler approach for assessing the scope of professional advisers’ duties when providing advice. The scope of the duty of care assumed by the professional adviser is determined by the purpose of that duty. By clarifying that the dual approach in SAAMCO of ‘advice’ or ‘information’ is no longer the approach to take, the lens through which litigants can now view the scope of their duty should be much clearer, with SAAMCO used as a counter-factual check as to what the purpose of the duty is. Yet, the judgment provides little advice on how to actually determine the purpose of the duty, and so the facts of individual cases will remain determinative of the issue. In addition, with so many divergent minority opinions the court has allowed the possibility of further claims and so this will probably not be the last we will hear of SAAMCO.